Skip to main content

tv   Book TV  CSPAN  April 30, 2011 10:00am-11:00am EDT

10:00 am
either side of the ohio and mississippi river valleys down to the gulf of mexico. in 1753, the governor of virginia sent a young major named george washington. and most americans don't know this story. >> you can watch this and other programs online at >> next on booktv, howard schultz, chairman and ceo of starbucks. he recounts his return to a leadership position in the country in 2008 after an eight-year absence. mr. schultz explains some of the setbacks that the company faced during the economic recession. his thoughts on starbucks deviation from its original kept -- concepts and his ideas that returned starbucks back to profitability.
10:01 am
than any place in the country so my shorthand of greater washington is highly educated and compensated and caffeinated. and i tell you, your stores do quite well and you do quite well for us. we are honored and pleased to have you join us this morning. welcome to greater washington. >> happy to be here.
10:02 am
>> quite an undertaking to put a book like this together as everybody in the room gets to go through it. you were very candid in this book. starbucks in your estimation and a few other critics lost its way for period of time. you came back as the ceo to restore that but not just to bring it back to where it was but onward -- "onward" is the title and on word is the plan. tell us why you put a book like this together because you share some incites that are voluble to business leaders. it is peeling back the inner workings in a candid way. >> thanks to the board of trade for hosting this. the book in many ways is a narrative of what we went through over the last few years and what i was trying to describe is starbucks was on
10:03 am
this magical car ride for 15 years. we went public in june of 1992 and everything we did turned to gold. new cities, new countries, new initiatives and the stock price almost a 6,000% gain invested in '92 and kept the stock. there was a period of time from 2005 to 2007 where i thought, without any blame the company began to demonstrate a virus inside the company and that virus i would categorize as hubris, and believe they were in a sensible. growth began to cover up the state's, the strategy of what the purpose of accompany to focus on the customer and our people.
10:04 am
i wrote this memo in november -- february of 2007 in which i was sharing with the leadership of the company, i was the chairman of the company that i was quite concerned that stock prices at record levels there were things i was smelling that needed to be examined. i woke up 24 hours after writing that memo and it was leaked and my world turned upside down and it turned out to be a catalyst for conversation. i returned in january of 2008 at a time when things that i began to uncover began to unveil themselves coupled with the cataclysmic financial crisis and all of a sudden not only the self induced mistakes that we made but turn everything upside
10:05 am
down. >> you alluded things that didn't smell right. you addressed the details from the aroma or lack of the aroma. we addressed things to the machines and the height of the machines, and the level of chairman, subsequently as the ceo that you go into is anathema to a lot of people in management that will set the policy or the direction, the details -- >> if we can rewind the clock, starbucks set out to build a different business model. it is not anything else but was very very different and we believe strongly that we are trying to build a business that achieve a balance on social conscience and as a result of that we put in two unique
10:06 am
benefits 25 years ago. one was comprehensive health insurance for every employee but one was stock options and we did that for part-time people but in addition to that there was a fanatical view towards exceeding expectations around the customer experience. i would say for 20 years or so that was the foundation of the company. when the company got to thousands of stores, and hundreds of thousands of employees. what happened was i don't think starbucks is much different from other public companies, the stock price began in a sense to intercept into the strategy of the company. what happened was no one said we were going to do this but what happened was we became complicity with wall street. >> it wasn't one cataclysmic
10:07 am
event but a combination of different things. let's go back a little bit on wall street. youth changed and ticked off a when you said we're going to stop looking per store. it won't be the cops per store. we're focused on the wrong things. talk about why that change happened and what changed your mind? >> the results that we get is more often what we measure and reward. we were measuring and rewarding the wrong finger. as the public retail company wall street has the primary metric which they call, store sales and year over year sales demonstrate whether existing stores are growing. >> and you go we are going to stop mentoring. >> we weren't going to stop measuring, the reason was i felt
10:08 am
i needed to develop, store sales, the back of retail store managers and reparations of the company because it was driving the wrong behavior. >> store managers selling things outside the court. >> driving revenue and sales for our, we are in the business of exceeding expectations of our customers whether we ring the register or not. what we had to do his press the pause button inside the company and outside. if you go back into the book. i don't know if anyone has done it before. i don't know if we were going to be smart or core but we need to say the quality of coffee that we are borrowing is not as good as it once was. we closed every door in america
10:09 am
and canada for retraining. >> lots of people walking around for blocks. [talking over each other] >> you can imagine what the reaction was from the competitors and the media. one analyst report says it was about me. never give an 800 pound gorilla a caffeine. my son saw that and have you seen this headline? it is terrible. what are you doing? i said we can't worry what people are going to say. we are going to define the future of the company. it was the beginning of the turnaround of the company and it is worth repeating. at the height of the financial crisis when no company in america was traveling, we decided we needed to have a companywide meeting, the most important person at starbucks
10:10 am
was the retail store manager. so we brought 10,000 people to one place. every municipality wanted this invention because there was no company spending any money. they visited starbucks and made a pitch. the short story is we decided to go to new orleans. we went to new orleans first and foremost to commit 50,000 hours of community service to help those people who are left behind after katrina. then we had 10,000 store managers meeting in one place. what galvanize the company was the rekindling and reminding of the values and core purpose of the company which was very important. then we had this meeting and in front of 10,000 people when i asked for was two things. with great transparency and vulnerability as a leader i described the situation. stock price was below $10,000 a share.
10:11 am
cap in 18 months. we had negative compression for the first time in history. we didn't have enough sail in certain parts of the day to justify the labor and we laid it out and people said people would get so scared, you can't tell them anything and i felt the opposite. there are times when you have to be totally authentic and truthful and absolutely tell the real story. i link it to what we need from them. individually we need a higher level of personal accountability and responsibility and for everyone to leave new orleans not being a bystander and recognizing they have a voice. we left new orleans on fire. it was the beginning of the turnaround of starbucks.
10:12 am
the stock price was $3 from the all-time high. >> let me just say i read through a lot of these books, because times are different, because a lot of people were pulling back on your coat tails saying we don't share that part of the book, that is not something we are ready to be as transparent about in new orleans. the passion about the direction of the company, when you bring people together to share that, and strong bond for people in the battle with you. not just saying here is where we are going to go but you bringing them all together. when results speak volumes it was funny to see that obama wasn't the rock star in new orleans. was your person on staff who brought in the black laptop
10:13 am
opening of from the case saying we are going to give every store the technology to do the job we want you to do. you were outfitting the troops in certain respects. >> as leaders especially men, we presented this component that we shouldn't show emotion, we shouldn't cry, let me say something that is important. this book and my relationship with starbucks is about a word that is not used very much in business and it is love. i love this company. i feel a deep responsibility for 220,000 people and their families, relying on all of us as leaders in the company. when we went to new orleans if we don't turn this company
10:14 am
around in six months. i share a higher level of emotion and compassion than ever before. the resiliency and emotional connections of 40 years of people coming together the innovation that came was spectacular. over the last year and a half we reinvented a category, debt for 50 years was dormant and that was instant coffee. there was another point that the best days of starbucks are clearly over and this was the death of a hail movie move and it was the opposite. great entrepreneurs have to have the courage to see around
10:15 am
corners and have the curiosity to see what is coming and what is possible and having courage to execute against them. >> you spoke to us and said i don't want the capitals and wizards and what we put on the street to be wanted. i want to be loved the. not enough to be needed but you have to be loved. not wooley that you love the company but the product that you put out is loved by a lot of people. i want to talk a little bit about it but let's talk about the instant coffee. the original working title up. [talking over each other] >> that was the early trade mark. >> we tried. it may not be a trademark for anything legal but you wind through the instant coffee. it didn't disturb you that people referred to as instant. you recommended to embrace the
10:16 am
term. maybe not refuted but how has that gone because it was a rate -- big risk for starbucks to get into the equivalent of instant coffee? >> i looked at a $24 billion global category that had not had any innovation for 50 years dominated by one company who rightfully or wrongfully hasn't brought much to the category. [talking over each other] >> if we could replicate and crack the code through technology of replicating starbucks coffee in instant form that was told this test. it took many years to get there. once we turned on the team, we developed a piece of technology that gave us the ability to do it. if we realized that we were off
10:17 am
and running. we haven't even begun to take it globally because the $24 billion market is. for them to be reminded to be the entrepreneurialism dna of the company and we are going to take the road less traveled once again. >> you also did that and it was interesting to read how you infuriated a number of customers, putting out a light beer. that is not the starbucks coffee and there is a passionate group of people who think that is the best coffee that you. talk about the role -- another element was you came back, you needed a couple of singles and a couple home runs. you can't come in quietly and go we will tinker around here.
10:18 am
>> some of the learning i had here was i was looking for a silver bullet that could change the landscape of starbucks and the more i looked realized there wasn't a silver bullet that was going to change things just like there wasn't one of thing that put us in this situation. this was another example of appealing to people who were not coming to starbucks because the coffee was too strong and bold. we created a letter road for people and a more accessible coffee and realized even though we are serving sixty million customers a week we have less than 5% share of all coffee brewed in america. how do we get a bigger -- at the same time we have competitors, small and large that smelled blood and trying to do that. nick john senden and doughnuts at the low end and independents who had gone to the high end and the worst place we could be was in the middle. we had to significantly create
10:19 am
innovation and redirect the equity of the brand. people were not the finding as. we were going to define ourselves. >> exposure in the media as overwhelming tour business. everyone has an opinion. everyone is an expert on your company and you open the door to have them tell you we will talk about that. here is usa today's corporate consultant told usa today in an article sidebar doling out advice from a smattering of industry experts achsah for a few items it read like a page from our existing playbook. smell good again. embrace wired use for more loyalty. get help your. drop food that doesn't jive with java. cut the clutter in the theater. open fewer stores. set combo meals and give coffee away. applying such improvements to our business may not have been brain surgery but fail to appreciate the nuances of integrating a service based
10:20 am
business especially brand as emotionally involved as ours. starbucks is not coffee company that serves people. it is a people company that serves coffee. you really went back to putting the focus on the partners in your stores, the people of starbucks, beyond the product. to you and why that >> if you look at the history of consumer brands and over the last 50 years starbucks is really an anomaly in that most consumer brands have been built through traditional advertising and marketing. when we started our company we had no money and so marketing or advertising was completely out of a question. if you look at starbucks today we are a top 20 brands in terms of recognition and respect. you got to ask yourself we spend
10:21 am
more money on training than we do on advertising. how did you do it? i am not smarter than anyone else but it happened in a unique way. starbucks quintessentially was built by the experience in our stores and that experience comes to life from our people. we are not a franchise system. we are company-owned. the culture and guiding principles of the company have been and continue to be the significant competitive advantage that we have. that is why it was so important to go back to the heritage and tradition of starbucks in which the person who in wears the green aprons is the most important. of all the attributes that have built great enduring brands over time the most important attribute and it sounds trite is trust. we can't exceed the expectations of our customers if we as a company don't exceed expectations of our people.
10:22 am
i think we had to go back to reminding people is not about growth next door. it is about you. for us to have transformed the company financially and leave our people behind would have been a tragic and very shallow results. the transformation of starbucks, why it is so gratifying and the reason we're so sound is because people have been brought along. we have done everything we could not only to focus on the customer but enhancing the >> as you decided to step back into the company. i would like to go back there for a moment. you got a sense that things were off kilter. wasn't one big event but a series of different things. it was the cheese being burned in the sand whiches, the lack of coffee smell when you're going in. i won't take a back to the trip to hawaii with michael bell but he was influential in the
10:23 am
transformation agenda. before you get back to the office and make the announcement to the assembled team, we saw the shot in the video, you went back to the original starbucks store. you still had the key to the or original starbucks store, if you are the ceo you can walk in any time you want so before you gave it to everybody, you did go back to the roots because you worked there for a period of time. >> it sounds very sentimental but i do have the key to the originals tour. the day i came back i went back to that store in the morning before it opened. i wanted to be reminded. there is an expression that walls can talk. i trained in that store. i spent some time revisiting what was like when the company was in small and we were fighting for survival. i remember those days when we couldn't make a roll.
10:24 am
when we had vendors wind up with sheets of paper in voices and we had to decide who to tell the story to. it is important to understand that there was a process, when we were fighting for survival and respect, in a very unique way of those days repeated and i was about to come back. the day i came back i did something that was very uncharacteristic. i stood in front of the entire company and apologized. i apologize for the fact that i believe as leaders we had let the company and let our people down. that apology was linked to a promise. we promised to restore glory to the company and the wouldn't ask anything of them that i was not going to ask of myself. the night before that, are had summoned -- i had asked -- in slated for a cup of coffee the
10:25 am
direct reports of the ceo to come to the home, on sunday night that i was coming back. it is an important moment as well. when you're trying to transform a business against the worst cataclysmic financial crisis known to mankind the rules of engagement are going to change completely and you are not going to have the tools and resources that you once had and it will require an unbelievable, monumental effort of everyone. when i asked the team in the privacy of my home was i want you to understand what we are about to do is going to be a climate like no other climb we ever had and there will be great resistance and great challenge. you have to ask yourself whether or not you are up to this. i was told by another ceo that
10:26 am
it would be gone in six months. that is not possible. the truth was i had to replace nine of the 11 direct reports that i inherited that sunday night because the truth was did not believe in the future of the company. a lot of them didn't believe in me. sometimes as leaders, we look over something that we convince ourselves that we can change people. i can count on one hand how many people i have seen change. we convince ourselves we can do that and we wait a year and we have to make a tough decision. we lost the year and perhaps -- we have to hire somebody else. the most important thing i can say during the crisis was the need to be decisive on every action even when we don't have
10:27 am
perfect information. you must have people with like-minded values and have the skill base and experience the on you. >> let's go back to trust. >> you invite them for the discussion in your house after you have spoken at that point. he has been told personally which i think demonstrates a real level of respect by you. not easy hearing that from wall street or getting a call from our reporter but you had a leaked memo that burned you pretty bad and you assemble people on a sunday and said i am going to share things that we are not ready for prime time tomorrow and share this with everybody. when you sneeze wall street catches cold. certain things you are not allowed to share or rollout carefully. i was stunned and impressed by
10:28 am
the level of detail in this book about how you and different alongside you played this all-out. you just laid it out with a level of detail but it was impressive about how you trusted this team because probably somebody in that team was a person who leaked the or original memo. >> i have a month and a half to back and as you mentioned i spent some time with michael bell and he shared with me what he had done when he came back so i had a script already in mind i didn't ask what the plan would be. i had a battle plan from day one. as a public company once we played the first card we had to be ready to go. telling jim in the afternoon, telling the team that night
10:29 am
everything was completely ready before the market opened monday morning to tell the world. i should say something really important. the person who ran the company was a great leader, great person but for whatever reason it wasn't working. but he wasn't to blame. there were a host of people me included, i was as culpable as anyone else because i was not paying attention. i was doing other things and what i said to the group that day and what i said subsequent to that was we are not looking back. we are not placing blame. this is about today and the future and all of us and we are going to right the ship. there was a good amount of the family about you apologize to everybody.
10:30 am
your passion about it speaks you came back. i go back to my passion for the company and what i felt was my the crisis was so acute. of the person coming into the company would learn so much, i knew where the bones were buried. ainu the people, i knew the issues. i felt i would be given a license from the street to do certain things that would give me time. .. was, did you do things
10:31 am
too fast. then i came to this page on 144 where it says, as you would eventually concluded that the product as well as the way we have brought it to market met three critical criteria for success at starbucks. it was right for engaging our partners and it was right for and met the needs of our customers and it was right for the business. unfortunately, i did not realize that not everything the company was trying to do that season met those three very important standards. at the end of 2008, or april, 2008, we faced starbucks second quarter numbers. it was dispiriting. i bet it was body blow that all the energy and the drive and passion was exciting.
10:32 am
and then the numbers came through. how do you rebound from that because now you have to pick everybody and get them fired up yet again? >> well, i think we were -- we were introducing new initiatives and trying to create relevancy with our customers and faith and confidence with our people. but the cloud over the economy and the anxiety over the consumer was so great that it was very, very difficult to break through. and starbucks, if you remember, became kind of a poster child -- mcdonald's had billboards all over america $4 is dumb. i don't know if you ever saw any of those, but i did. [laughter] >> i didn't look at them. and so the crisis made it very, very difficult and i think the question that i was asking of myself is how long is this going to take? and the faith and the confidence that you had to have in the brand and the resiliency of our
10:33 am
people believing that there was a point when this was going to break through. and again, you know, we had these meetings with the board where we had 8 and 9% negative comp store sales and the board asked us to model -- if it got to negative 15 or negative 20 and i was talking to other retailers all over the country who, you know, lex wexter and mickey drexler at j crew and all these other retailers and they were seeing digit comps and we had not gotten it and if it had gotten to negative 15 at starbucks, we probably were going to be in a situation -- we were going to run out of money. now, no one really knew how bad it was -- it was going to get, but the truth is, it never got worse than negative 9 and then all of a sudden, the initiatives and all the things we were doing began to resonate with the customer. and there was one thing that did kind of crack the code which was
10:34 am
the loyalty program. and i brought jim senegal the founder of costco to talk to us because he's an expert on the car business. and he gave us some great advice. and one of the things he said was, during this period of time, the thing that you must do is focus on your core customers, not trying to attract new ones. and we were doing the opposite. and he said that because the cost of losing your core customers and trying to get them back is going to be much greater than the cost of losing them. and so we shifted the focus of the company in terms of loyalty and rewards on our core customers and we created this loyalty card and that loyalty card had a life of its own. and today the card business at starbucks is 22% of transactions. and that had a significant effect on beginning to kind of put our feet in the shoes of our customers and give them value to starbucks without diluting the equity of the brand.
10:35 am
and again, it wasn't one thing. but over time, the connective tissue of relevant innovation, a high degree of expertise and initiative on operations, making the perfect shot of espresso. retraining our people, resigning stores, closing stores that were nonperforming and all of a sudden we began to get not the wind at our back but a little bit of breeze where we thought i think it's going to happen. >> well, you had some big splash events, of course, you didn't close the stores for the big splash. i don't mean closed the stores but the three hours to retrain people. >> yeah. for the relations. in fact there were some pretty good hits. you did it to retrain. yes. >> let me ask you a couple of questions and then i've got a couple of questions you said rarely did i sleep more than four hours a night. back on 89 in the midst the crisis you talked about how you didn't get any sleep. i was wondering do you ever think it could have been the
10:36 am
caffeine? [laughter] >> so now we get into -- here's the issue. and there are two places that you address it. you go into the stores and you heard from people what the problems were. i mean, they were laying it out on a regular basis so here's the section 149 said, cliff had realized that starbucks field operations were inadequate. what many of our people had in spirit they lacked in business acumen and tools. it wasn't uncommon that a store was doing real when it was missing revenue opportunities, barely breaking even or even losing money. we had too much of waste and coffee was being pulled out pastries were understock or overstock resulting in loss sales or discarding product. and with store traffic patterns took managers hours yet still stores were understaffed or partners underutilized and then later on in the book you
10:37 am
actually talk about, well, the toppings for the oatmeal weren't being delivered. that there were shortages in different stores. it really was a return to basics that needed to be addressed at starbucks to restore the credibility and the expectations of your -- of your customers. that must have been an herculean effort to undertake that. >> what you just outlined was, in essence, what i said earlier. when you are growing at the rate we are growing at and every new store met expectations and every new country opened with great fanfare and revenue and profit as a corporation exceeded expectations it just showed the underbelly of the company was not healthy and we did not address these things because succeed overpowered all of this. and the music at some point was going to stop playing. and it did. and i think the crisis in many ways, not that anyone would want
10:38 am
to manage through this but it gave us an opportunity to address all these things and in a sense the muscle restroom and the discipline that we put in place in the last 18 months to not only examine all this but check every box and fix all these things once and for all produced such a healthy environment that now the revenue has come back and the cost structure of the company and all the things you've just described are being -- have been taken care of, so that is now why we're at a place where there's record revenue. but anyone who's been in the retail business knows there's an old adage that retail is detail and we were not playing close attention to the details of the business. and we're focusing on things that didn't matter. and we were driving towards metrics that had nothing to do with what was most important, both satisfying and exceeding expectations of the customer and the back of the house was just in a very, very bad order. and we fixed all that. >> and people told you, howard, and i don't mean people within
10:39 am
the company told you -- your clients, your customers told you, and you invited that comment. talk to us a little bit about how -- when you opened up the email and you said, okay, fire off your comments to me, 5400 comments came in in a matter of couple days. there was no shortage we like this and we don't like this. and now talking about the product and the problems. i'm going to talk a little bit about the store closings and the passion people had about their neighborhood starbucks in a second. >> well, one of the things that i did in the first few months when i came back is i went around the country and i had these open forums for customers. and we would close the store from about 7:00 to 9:00 and have these listening tours where customers were invited in. >> you would do this. >> i did that in about 10 markets in the u.s. and 2 markets overseas and i walked in, god, these people hate me. and -- but -- >> they didn't have high expectations walking in. >> but i didn't know what to
10:40 am
expect. but underneath it all was this high level of emotion where people feel so passionate about starbucks and did passion was, don't even think about closing this store because this is my store. and by the way, the music is too loud, the muffins are stale, the coffee is never made hot enough and we're hearing all this and we put it on videotape and we got permission from every customer to share that and we would go back to seattle and then we would have an open forum meeting with our own people, and we would show the tape. and people couldn't believe that this was our customers. well, first off, why were they still customers? because they loved the brand, but the feedback was so positive in terms of our ability to take that and start refining. and we did this all over the country. and it began to give us the connective tissue as to what to do. >> you cover in here during the recession people didn't stop going to starbucks.
10:41 am
they came less often. >> yeah. >> it wasn't like we're going to turn our backs on your company because we don't like what you're doing. we're just not going to be there as often and part of that, of course, is the economy and part of that is that are you giving them enough reasons to be engaged because of their -- the sense of community that one gets that you push very hard to accommodate in the starbucks. but that was -- that was pretty telling. now, i'll say you're also probably the worst customer to ever walk into a starbucks because you know how long the milk should be steamed and it should be sitting there and go back to the company and saying we're leaving the steam milk around too long and after that the sugars break down. i learned a lot from this book and i feel like a chemist now and this is your life and you applied that level of attention to what's going on in the stores and listened to your clients. it's a lesson in here that is just a wonderful business lesson for everybody. i commend you for doing that, really making some substantial
10:42 am
changes in the store, and then i'll twist that around by saying, and clearly not everything works. are you going to get to that? >> i'll get to a few. >> but you have a brown bottle on your desk. >> yeah. >> i'll get to the quote real quick and then ask you about that. masagran. it's a grabbing name i guess. >> it's masagran. i can help you. >> thank you. it was printed on the bottle in big letters and it was imprinted on on my psyche and do not escape. it had been my first attempt in collaboration with the board member to extend starbucks copy outside of the walls of our stores in an unfamiliar forum. i have to tell you, i read a lot of different business books they are not putting in the things that didn't work. they just want to brag on the things that did but that seemed to be a lesson you got the bottle on your desk to remind
10:43 am
you -- >> well, it's a great reminder but the flip side of the story that it turned into a $2 billion business. so i got to tell the linkage. >> please do. [laughter] >> so when we developed frappachino in our stores, we delivered a subbrand which is this blended beverage but we had a ready to drink beverage which is carbonated coffee. i thought it was a bad idea. it was the starbucks edsel. >> frappachino was doing well and i went back to pepsi. we had the idea right but it didn't need to be carbonated. and to pepsi's credit they looked at frappachino and they said, okay, let's leverage the subbrand of starbucks in our stores into the grocery channel. frappachino is a $2 billion brand with bottled beverages in many parts of the world and it
10:44 am
gave us the impetus that we could have this consumer band that had retail stores and leverage that into the grocery channel. we have a $500 million roasted ground business which we just got control over from kraft on march 1st. they are in 30,000 grocery stores so the future of the company will be to introduce brands and products in our stores, leverage in grocery and do things that perhaps has not been done before. >> so two things. you have cards on your tables. if you'd like to submit a question we're going to open it up for questions, if you have a starbucks card or wallet out of your purse because i'll have a question for you in a second. i want to open it up to two our topics before we get to question and answer. the store closings it was like taking a rib from some people with the passion that people have about the starbucks stores. you had -- when you were doing a tour, you had one lady, elderly
10:45 am
lady, get down on her knee and plead for you to not close that store, and you said, we'd take another look but sometimes, oftentimes, the numbers don't lie. >> yeah. >> it's ingrained in people that growth is good, growth, growth, growth. but you actually did some significant pruning in the spirit of spring. talk to us about what led to the decision and it was emotional for you. it was very difficult for you. and it's clear here and i imagine elsewhere that it wasn't just closing stores. now you're talking about the partners. so talk to us a little bit about what led to the decision, though, it's all laid out in the book, and then what that was like for you. >> well, i think in the history of starbucks, we never had any situation where we closed stores because they were nonperforming. we probably closed 20 stores in 40 years. that was the track record that we had as a company.
10:46 am
however, when i did come back, i began to financially examine the stores that were open the last two years. and at the height of the subprime mortgage crisis, we had a lot of stores that were linked to these areas all over america, especially in california and florida. and we looked at these stores not only not only were they nonperforming and there was 10 or 15-year leases and there's no way these stores were going to make it from an economic level. the tragedy we were closing stores that primarily had been opened less than 18 months. and these were -- and it ended up we're going to close 200. then it became 400. the board and i looked at it again and we ended up closing up to 800 stores in america and, of course, that had impact into the infrastructure of our building in terms of the support structure. and, you know, the challenge i had personally which was very emotional is, how are we trying to restore trust and confidence in the company around the
10:47 am
culture of starbucks and at the same time we're going to close all these stores? and i remember the night before, looking at the list of stores, and i wanted to see every single starbucks partner's name who was going to be asked to leave the company in the stores and in our office. so i could be ensured that there was not going to be any politicizing and i knew a lot of these people personally. and this was the hardest decision we had to make as a company but what was clear is we were trying to save the corporation. and in order to do that we had to close stockholders and -- stores and ask people to leave the company and you saw the tape i'm sure the closing of the stores has fractured the core values. >> it's like high school to see if you were cut from the team, i don't mean the staff. in washington, you're looking, did we lose any? and we did. we lost one over at 21st street. so now i have to walk two more blocks to get to my starbucks.
10:48 am
but it was -- [laughter] >> it was an interesting wave of publicity, good and bad. >> it was bad. >> but there was -- but i guess on the good side maybe it was yet another opportunity for people to demonstrate to you their emotional connection. people don't get worked up about a whole lot of different things closing in the world. starbucks was like -- you can't do that to me. >> and i think, you know, what we built over the years was we created something in america that previously did not exist. and we loosely -- and within starbucks call it the third place between home and work. but in a time in america where there's such a lack of human connection and humanity and the sense of community of starbucks stores have created, people look to starbucks and its place as a respite, as an oasis and it meant a great deal to lose that in the neighborhood and also, i think, there are times when a starbucks arrival in a neighborhood is kind of a badge
10:49 am
of honor. and if we're losing it, what does that mean? >> it's true. i will tell you it may have been the place between home and work. my concern is when it becomes the place between work and work. you should close your stores between 9:00 and 5:00 which is my idea for work force productivity. now we're going to talk about some of the companies and the efforts moving forward. >> sure. >> talk to us a little bit about seattle's best coffee. talk to us a little bit about green mountain. >> right. >> and you couldn't call them ipods, sorry. >> sure. >> the little cups because i was astounded by how big that market is for starbucks into the future. >> well, first off, we are witnessing a seismic change in consumer behavior, primarily because of two factors. one is the pressure on the consumer for the lack of
10:50 am
disposable income is real. unemployment is still high, small businesses have -- are still having trouble getting credit and as a result of that, people are making buying decisions on products and services very different than they did in the past. the second thing is, that as a result of social and digital media, the consumer has access to information so quickly and in a very unique way that the rules engaging and marketing a brand is very different. so having to say that, we need to embrace technology in a unique way but i believe we can create multiple billion dollar brands for starbucks that don't to have live inside starbucks stores. so seattle's best coffee is a brand that is underneath starbucks, that we think appeals to a broader audience because starbucks is not for everyone, both in price and in taste. and so that's sbc. green mountain, you know, we announced that deal 2.5 weeks
10:51 am
ago and our market cap went up $2.5 billion in one day as a result of the fact that 80% of starbucks customers do not have a green mountain machine because we're not on the system so once we announced we were going on the system and we would be exclusive in terms of premium coffee, there's a whole big market for that. that will be a billion dollar business in a number of years. >> and from the numbers i read on the rollout, the upside of that, it really is an unbelievable number, the numbers of people who have machines, the number of people who don't have access then to starbucks and that delivery mechanism and the growth. >> and the whole area of single serve we have a relationship with courtesy so we'll be in 500,000 hotels and this is a whole big market for us. the other thing i want to mention is just going back to technology for a moment. over the last 18 months, we have invested heavily in social and digital media. starbucks is the number one consumer brand on facebook, on twitter and on four square.
10:52 am
what this has done is two things. it's lowered our cost of customer acquisition and lowered our cost of advertising but most importantly giving us the ability to emotionally engage with our customers in a very, very unique way. the other thing is, what's going on in our stores with regard to mobile payment. if you examine what's happening in korea and china and japan for that matter is what's coming to america is that the digital wallet is going to be on your phone in 18 to 24 months max. and the amount of transactions that we as americans are going to do in terms of using smart phones as a wallet is going to be ubiquitous. we turned that on 82 days ago and in 82 days we have become the number one brand in america in terms of mobile payment, in terms of transactions and dollars. and this is just the beginning of what's going to happen, you know, the -- you're going to get coupons. you're going to get offers. you're going to get all kinds of things from many, many companies but most importantly, the smart
10:53 am
phone is going to be the primary way in which we as americans are going to pay for things over the years. >> i agree and here for the metro system when you're getting on the train or on the bus, into the future, you'll be able to use that mobile device. >> yeah. >> will that expand to also how i order my beverage at starbucks? >> it probably will. and i think it speaks to a broader macroissue. whatever business we are in, small or large, embracing the status quo is important. every company must push for self-renewal and reinvention while preserving the core values but technology and seismic change in consumer behavior has left the station and every company is going to have to embrace it. >> you have the ability for customization already. now, with the technology on the customization but here's the quote, so i appreciate that you
10:54 am
wrote this out so i could follow it. page 134, i'd like an iece grande latte with nonflatline to the bottom line, ice to the top with a super stiff foam with a dome lid. that's the drink diane ordered almost religiously in cold creek wisconsin but in bellevue have two double cup venti breva. wow, i feel like a piker with my grande every morning. but the level of customization. it is part of the starbucks experience. and it is the barista. it is the seat of that and the technology to get it right. you've got the sign up there, if it's not right, we'll make it right. technology is one part on making that happen but talk to us a little bit about the recommendations that come in from people. every time you meet somebody, they go, hey, howard, i've got a great idea or somebody knows someone who works at starbucks in management or elsewhere. i've got an idea.
10:55 am
you solicit those ideas. >> yes. >> comment cards. >> right. >> technology, on the web and more. boy, that's exposing yourself to quite a bit of -- >> well, you bring up first off -- there's 87,000 different types of concoctions that people can order at starbucks 'cause there's less in the tax code just so you know. [laughter] >> and that is a competitive advantage but also puts tremendous pressure on our people but customization is a big area, i think, of building a competitive difference between us and everyone else. but the other issue is that we have to be in a position where we're not just pushing information at our customers. so when i did return -- michael dell gave me this great idea, which was put up a website and we named it and again, there was great
10:56 am
resistance from some of the most senior people at starbucks to do this because they were afraid we were going to get complaints. and it was okay to get complaints because we wanted to hear from customers. but the ideas that started coming in were ideas that were generally authentic and real from our customers. and again, it gave us this loop of being able to interact with our customers in a unique way. and we created one internally from our own people. so there's two kind of floods of information, all day long, back and forth between customers and our partners. >> but there's a part, damned, if you do, damned if you don't and then the decision is made to change the logo and you get it with both barrels from people who go, changing the logo, what are you prince now? and it's just a symbol and there's no more starbucks on it or no more coffee? >> right. >> you can't win. [laughter] >> you should be doing stand-up. [laughter] >> well, the logo -- we just celebrated our 40th anniversary but it's not about that. i mention the strategy to go beyond our retail stores with
10:57 am
food and beverage that perhaps won't have coffee in it. so the logo change, removing coffee and the name starbucks gives us the autonomy and freedom to develop won't have coffee associated with it because we're going to build a significant consumer products business in grocery that probably will have a lot of products not associated with coffee. that's why we changed the logo. >> i won't ask because the answer we're not ready to announce it yet. >> okay. >> so i'll pass on that so here's a couple of questions, my daughter asked not to change the caramel latte. i frequent the store at 19th and k for five years. most employees are still there. i see a smile. they know my usual grande bold, what drives this high level of corporate culture? >> i think the enduring nature of the competitive advantage that we've always had has not been the coffee or the real estate or design or marketing. and it has been our relationship with our people. you know, for 25 years or so,
10:58 am
we've had a unique meeting at starbucks on a quarterly basis in every region around the world. and, in fact, we're going to have one this afternoon because i'm in d.c. and that meeting is an open forum and it's like a town hall meeting. and we bring our people together. we spend about five minutes only on the results of the quarter and what we're going to try and do next quarter. that's it. and then we have an open mic. and the open mic is, tell us what you're feeling about how we're doing and tell us anything you want about the concerns and the complaints you have. >> do they all cover their name badge when they are asking you questions and -- >> no. and for 25 years we have had these meetings there hasn't been any retribution and there hasn't been any cause and effect other than we want to hear from you and we want to improve. now, during the years when we were doing so well and some of these things were not being addressed i don't think we were at our best.
10:59 am
but i think we've renewed this high level of sensibility within the company that people understand they have a voice. they have a future. and the most important person in all of starbucks is wearing a green apron and we want to value and respect our people. >> howard, it says you de-emphasize growth for a time to focus on quality customer relations and your people. how is your approach to growth now different now than it once was? >> we pressed the pause button for about 18 months. there was no growth, whatsoever. and i think we now feel that we can return the company to being a growth company at about double-digits levels. and we'll go 7 or 8% this year but, you know, i think that if you're not a growth company in the industry that we are in, it's very, very difficult to attract and retain good people.


info Stream Only

Uploaded by TV Archive on